Regulatory: U.S. Travel Act joins FCPA on the compliance main stage

For some years now, the Foreign Corrupt Practices Act (FCPA) has ranked as a top source of compliance headaches. But just as the FCPA enforcers finally appear (for now, at least) to be slightly slowing their relentless pace, a new case out of the Eastern District of New York promises to finally propel the FCPA’s long-time fellow-traveler—the U.S. Travel Act—out of the FCPA’s shadow.

“Unlawful activity,” in turn, is defined to include violations of state commercial bribery laws, and “facility of interstate or foreign commerce” has been defined to encompass all means of transportation and communication.

Bribery between private commercial enterprises (no matter where in the world it takes place), therefore, falls squarely within the Travel Act’s proscriptions, provided the minimal jurisdictional prerequisites are met (a low bar, given that all travel or interstate or foreign communications qualify).

And as the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) pointed out in their recent FCPAguidance, when a company officer, employee or even third party pays kickbacks to an employee of another company, such private-to-private bribery threatens to invoke the specter of up to 5 years imprisonment and a $250,000 fine per violation.

DOJ pulls the Travel Act trigger (again)

Although the DOJ certainly has brought a handful of other Travel Act cases in the 2000s, the recent case of Roland Kaufmann, CEO of Axius Inc., commands particular attention because it involves private commercial bribery occurring outside of the U.S.

Axius is a business consulting company incorporated in Nevada, with its principal place of business in Dubai, United Arab Emirates. According to federal charges brought in the Eastern District of New York, Kaufmann, who resides in Switzerland, conspired with a Swiss finance professional, Jean-Pierre Neuhaus, to artificially inflate the value of Axius stock by bribing a network of stockbrokers in the U.S.

More specifically, as part of their charged plan, Kaufmann and Neuhaus contacted an individual in the U.S. by telephone and email to direct stockbrokers to purchase Axius shares owned by Kauffman at increasingly higher prices, and to refrain from selling those shares for one year. The indictment alleges that they in return offered the stockbrokers a generous kickback of 26 to 28 percent of the sale price.

The bad news for Kaufmann and Neuhaus was that the individual handpicked for the job turned out to be an undercover law enforcement agent. After the agent executed a series of trades, Kaufmann wired payment to the agent in New York. Eventually, Kaufmann and Neuhaus flew to New York to meet with the agent to discuss the details of the plan at a restaurant. After the meeting, Kaufmann and Neuhaus were arrested on various charges.

Although no investor was defrauded as a result of the undercover investigation, which lasted only a few months, Kaufmann and Neuhaus were indicted for, among other things, securities fraud, money laundering, wire fraud and violating the Travel Act. The SEC also filed a related civil enforcement action against Kaufmann, Neuhaus and Axius.

After Neuhaus pled guilty to one count of conspiracy to commit securities fraud and violate the Travel Act, Kaufmann on January 11 pled guilty to the same. Kaufmann agreed to forfeit nearly $300,000 and faces up to five years in prison. The SEC’s civil action remains pending.

A sign of things to come?

The Kaufman plea demonstrates the increased vitality of President Barack Obama’s Financial Fraud Enforcement Task Force, and likely signals the beginning of an increase in law enforcement efforts aimed at private and international commercial bribery. Companies doing business abroad, and seeking to avoid the fate of Axius and Kaufmann should therefore ensure that their compliance programs not only cover the now-familiar FCPA, butalso adequately take into account the considerable danger of private/commercial bribery.

Contributing Author

T. Markus Funk

T. Markus Funk is a White Collar Defense and Internal Investigations partner at Perkins Coie, where he co-heads the firm’s Corporate Social Responsibility...